Apple restates, acknowledges faked documents

SAN FRANCISCO  As expected, Apple Computer Inc. Friday (Dec. 29) filed its Form 10-Q for the quarter ended July 1 and its Form 10-K for the fiscal year ended Sept. 30 with the U.S. Securities and Exchange Commission (SEC). The company said it recognized total additional non-cash stock-based compensation expense of $84 million after tax, including $4 million, $7 million and $10 million in fiscal years 2006, 2005 and 2004, respectively.

In the filings, Apple (Cupertino, Calif.) acknowledged that the company faked documentation to indicate that a grant of 7.5 million options to CEO Steve Jobs was recorded at a special meeting of the board of directors on Oct. 19, 2001. Such a meeting, Apple said, did not occur. There is no evidence that any current member of management was aware of this irregularity, Apple said.

Apple acknowledged, as it had previously, that CEO Steve Jobs was aware or recommended the selection of some favorable grant dates. But Apple said Jobs did not receive or financially benefit from these grants or appreciate the accounting implications.

Apple said its restatement arises solely from certain stock option grants made between 1997 and 2002. The company's investigation found no grants after Dec. 31, 2002 that required accounting adjustments, according to the company.

Apple said its analysis determined that the originally assigned grant dates for 6,428 grants on 42 dates are not the proper measurement dates. After accounting for forfeitures, Apple recognized stock-based compensation expense of $105 million on a pre-tax basis over the respective awards' vesting terms, the company said.

Apple said it spent more than 26,500 person-hours searching more than 1 million physical and electronic documents and interviewing more than 40 current and former directors, officers, employees and advisors. The company said the investigation found no misconduct by current management.

The 10-Q filing said Apple's investigation raised "serious concerns" about the actions of two unnamed former executives in the accounting, recording and reporting of stock options grants. While Apple did not specify the identities of these two former executives, published reports by the Associated Press and others say they are believed to be Fred Anderson, Apple's former CFO who resigned from the company's board earlier this year amid the internal options probe, and Nancy Heinen, Apple's former general counsel.

In a statement released by Apple Friday, former U.S. Vice President Al Gore, an Apple director who chaired the company's stock options grant investigation committee, and Jerome York, chair of Apple's audit and finance committee, said, "The special committee, its independent counsel and forensic accountants have performed an exhaustive investigation of Apple's stock option granting practices. The board of directors is confident that the company has corrected the problems that led to the restatement, and it has complete confidence in Steve Jobs and the senior management team."

Apple said a grant dated October 19, 2001 was originally approved at a board meeting on Aug. 29, 2001, with an exercise price of $17.83. The terms of the grant were not finalized until Dec. 18, 2001, the company said. The grant was dated Oct. 19, 2001, with an exercise price of $18.30. The approval for the grant was improperly recorded as occurring at a special board meeting on October 19, 2001, but that meeting did not occur. The company said it recognized $20 million in stock-based compensation expense for this grant, reflecting the difference between the exercise price of $18.30 and the share price on Dec. 18, 2001 of $21.01.

Apple said the company made two grants to Jobs during the relevant period. The first grant, dated Jan. 12, 2000, was for 10 million option shares, the company said. The second grant, dated Oct. 19, 2001, was for 7.5 million option shares, according to the company. Both grants were cancelled in March 2003 prior to being exercised, when Jobs received 5 million shares of restricted stock, Apple said.

Like many companies, Apple had delayed making SEC filings pending its internal stock options grant probe. The Nasdaq stock market had threatened to delist Apple's security if it didn't make the filings this week.